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RS-1. Municipal. Bonds (A) <br />The traditional way of financing most local public improvements and <br />facilities has been, aid will likely continue to be, through the issuance of <br />bonds. But the public bond market is :urdrrgn;ng dr-• is change. Changes in <br />federal tax law will not only restrict local autit, in their ability to <br />issue some beads, but for the first tine_ al..i subject Lne interest earned on <br />certain municipal bonds to an alternative minimum tax. As a result interest <br />rates may have to be higher in order for the public sector to compete with <br />private investments in the taxable bond market. Indeed, the imposition of <br />interest rate limitations in this context could prevent bond sales. <br />It is the League's contention that artificial ceilings on bond interest <br />rates do not effectively hold down interest rates and may, in fact, add somewhat <br />to the costs of bond issuance by the creation cf additional legal and procedural <br />requirements. <br />Interest rates in the bond market fluctuate in response to a combination of <br />economic forces. Local officials must operate within the realities of such a <br />market. Whether or not there is a statutory ceiling, local officials have every <br />incentive to keep issuance costs as low as possible. Therefore, the League <br />recommends that the interest limit be permanently repealed to enable local <br />officials to effectively respond to whatever bond market• changes occur as the .. <br />result of market forces or federal action. <br />-59- <br />